Electricians' turn to face HMRC crackdown

UK: Last summer, it was plumbers. Now it is electricians who are the target of HM Revenue & Customs’ attention as tax inspectors crack down on businesses to uncover tax evasion.

In February, the HMRC wrote to 50,000 electricians warning them to pay their taxes. Those that fail to make a full disclosure will face penalties of up to 100% of tax owed and criminal prosecution.

The Electricians’ Tax Safe Plan is aimed at anyone who installs, maintains and tests electrical systems, equipment & appliances - and covers any tax owed, for whatever reason. Workers have until 15 May to register with the scheme - and until 14 August to disclose any tax owed and arrange to pay. Coming forward to make full disclosure means people face a lower penalty - expected to be 10% of the tax owed, in most cases, with a maximum set at 20%.

In January, Dave Hartnett, the HMRC’s most senior tax collector, said paying a builder in cash, allowing them to evade tax, will result in even deeper public spending cuts. He told “The Daily Telegraph” that people who contribute to the cash economy cannot then complain about austerity measures. According to Mr Harnett, every time someone pays cash in order not to pay VAT, the nation is diddled. Householders have a duty to ensure that other people do not evade paying their share of tax, he added.

The Builders Merchants’ Federation (BMF) believes the Government has an unmissable opportunity to tackle cash-in hand building work with the forthcoming Green Deal. The Federation wants the Chancellor of the Exchequer to use his Budget Statement on 21 March to extend 5% VAT to all projects eligible under the Green Deal. Doing so will also help combat the wider informal economy.

The merchants’ organisation argues that a lower VAT rate is the single most important incentive to persuade voters to improve the energy performance of homes & workplaces. A 5% rate already exists for some energy-saving measures. Extending this will entice customers to commission works when they modify, renovate buy or sell property (the so-called trigger points).

The BMF reckons there is also a compelling case to review VAT rules & rates because the existing arrangements are complex, confusing and do not favour green improvements. Most SMEs do not know how existing VAT rules & rates apply to incidental works. It is very unlikely their clients will know either. The risk is householders ask builders to do the work for cash-in-hand. Yet these are the very same people the Government wants to adopt the Green Deal when it comes into being on 1 October 2012 - exactly 7 months from today.

The BMF is part of the “Cut The VAT” coalition that campaigns for 5% VAT on building repair, maintenance & improvement (RMI) work. Research commissioned from Experian in November 2011 found that reducing VAT from 20% to 5% on the labour element of residential RMI would create over 100,000 jobs by year 2020.

Taking double glazing and boiler replacement work only, the study suggests that applying the lower rate to the annual £1 billion labour element of such works would cost the Exchequer £151 million per year. Campaigners argue that this monetary loss is offset by gains relating to:

 the shift from RMI done by DIY amateurs to competent, local professionals

 removing the temptation of resorting to the cash-in-hand informal economy

 the financial and socio-economic benefits of having more people in work.

The Electricians' Tax Safe Plan began on 14 February and is part of wider efforts to crack down on tax evasion. It is the second phase of a campaign aimed at builders and allied trades. The first was last year when the target was plumbers and heating engineers. In future, the HMRC plans to extend inspections to others such as roofers, window fitters, bricklayers and carpenters.

According to new research from Direct Line for Business (DL4B), one in five SMEs in the UK has been encouraged to expand following the Government’s decision to introduce an Employment Allowance of £2,000 a year towards employer National Insurance (NI) contributions.